Buying a new home can be an exciting yet stressful experience, whether it’s your first home, second or even third. When you’re taking out a mortgage loan, it can be even more complicated. Luckily for veterans and military personnel, they have VA loan available to them.
Types of VA Loans
Whether you’re making your first home purchase or refinancing your current mortgage, it’s important that veterans know the types of VA mortgage available. Here are four types:
VA Purchase Loan
The VA purchase loan is probably the most common type of VA loans. This loan allows veterans who meet the eligibility requirements to purchase a home without having to worry about having a down payment.
About the only real requirements, other than being a veteran or spouse of a veteran, are that the borrower must meet the income and credit requirements and must also use the home as his or her primary residence.
Streamlined VA Refinance
The streamlined VA refinance loan, also known as Interest Rate Reduction Refinance Loan, is a mortgage loan that allows the veteran to take advantage of lower interest rates.
VA loans are very advantageous to veterans because it not only offers lower interest rates but also allows the veteran to have lower monthly payments and possibly not have to pay closing costs.
The lender may offer to pay for the closing costs in exchange for slightly higher interest rates. The buyer may choose to take the lower interest rates and include the closing costs right into the loan.
VA Cash-out Refinance
The VA cash-out refinance loan is a mortgage loan that allows veterans to take advantage of lower interest rates and get cash out of the equity of their home.
The home’s equity is how much the home is worth in terms of a home appraisal. For instance, if a veteran owes $80,000 on a home that’s worth $120,000, the veteran has $40,000 in equity. The $40,000 is the amount the borrower can take out in cash.
Some lenders won’t allow borrowers to take out more than 80 percent of the home’s equity while others may allow them to cash out 100 percent. Lenders may vary in their lending policies.
Veterans interested in a cash-out refinance will have to submit a Certificate of Eligibility to the lender.
VA Rate-and-Term Refinance
The VA rate-and-term refinance is a mortgage loan that gets its name based on what it does. It allows the veteran to refinance a current mortgage to either change the interest rate or the term of the mortgage.
It differs from a cash-out refinance in that the borrower cannot take any cash out of the home’s equity. The loan balance basically stays the same.
If the veteran owes $100,000 on the loan, he or she will continue to owe this amount after the refinance. The only difference will be in the interest rate and the term of the VA loans.
Often, first-time borrowers take out mortgages with long terms, like 30 years, to have lower monthly payments. After paying on the loan for a few years, the individual may be in a better place financially and want to go with a shorter term.
However, the individual may choose to stay with the 30-year mortgage and take advantage of lower monthly payments resulting from the lower interest rates.